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Click Here For This Week’s  SEAF Model “Rainbow Charts” Update
Health Care Data Suggest Market Is Bracing For More Tactical Weakness
Conclusion, Investment Implications, Strategy

For the second consecutive week, the SEAF Model’s three best-ranked sectors are generally ‘risk on” Communication Services (XLC), Technology (XLK), and Consumer Discretionary (XLY).  However, also note that defensive Health Care (XLV) is the first- and second-best-ranked sector in the Trading (weekly) and Tactical (monthly) time frames this week.  This suggests investors are now starting to position themselves for a corrective decline, which both our Asbury 6 and Correction Protection Model (CPM) indicate the market is already in the midst of.  At the other end of the spectrum, Materials (XLB), Consumer Staples (XLP), and and Energy (XLE) are, in order, the three lowest-ranked sectors.  


Beyond The SEAF Model Video: This Week’s Sector Themes

This weekly video by Jack and John Kosar, goes into more detail on the latest SEAF Model data via a heat map that shows where sector-related assets are going, and where they are leaving, in the 11 Sector SPDR ETFs, and also dissects our SEAF “Rainbow Charts” which display the past 12 months of Favored, Neutral, or Avoid rankings in several key market sectors. 

From The Video: This Week’s Major Themes
  • Money aggressively remains in Communication Services, Consumer Discretionary, and Technology in All time periods.
  • Money aggressively moving into Health Care in the Trading and Tactical time periods.
  • Money aggressively moving out of Materials in the Trading and Tactical time periods.

The SEAF Model: Current Signals & Related Performance

Editor’s Note:  These are the latest specific trading signals generated by our SEAF Model, which also includes a rules-based money management component.  The backtested performance data below is based on trading a predetermined amount of assets with an equal allocation of those assets across the top three Rankings.  The model is updated once per week, on the weekend, and any rebalancing takes place on the market opening the following Monday morning.  This is the recommended way to invest via the SEAF Model.  Contact us for any additional clarification.

In the SEAF Model Graphic below, the Ranking column sorts the entire table of 11 sector ETFs according to the sum of rankings in the Trading (weekly), Tactical (monthly), and Strategic (quarterly) categories, from largest inflows to largest outflows.  The premise of the model is to invest in the sectors that the money is going into and to avoid the sectors the money is coming out of.  

The lower the Ranking number, the stronger the trend of asset flows going into that sector.  The top two sectors in each category, according to a positive change in inflows, are highlighted in green.  The top two sectors in each category, according to a negative change in outflows, are highlighted in red.

The SEAF Model

Click the table to make it larger

The latest data indicate a multi-timeframe trend of asset inflows into Health Care.  This is where the money is currently going in the sector space.

The latest data also indicate a multi-timeframe trend of asset outflows out of Materials.  This is where the money is coming from.


SEAF Model Individual Sector Charts (“Rainbow Charts”)

The charts below display the weekly SEAF Model Ranking Scores over the previous 12 months for the strongest and weakest sectors through September 12th.  The line in the upper panel displays these weekly scores within the context of being Favored (3-15, green)Neutral (16-24, yellow), or Avoid (25-33, red) and also displays the trend of asset flows as the money moves in and out of these sectors.  The lower panel plots the corresponding weekly relative performance chart of that particular sector versus the S&P 500 (SPY).

Communication Services (XLC)

Economically sensitive Communication Services (XLC) is again the SEAF Model’s top-ranked sector this week with a Ranking score of 10.  The green highlights in the upper panel show that XLC initially moved into Favored status on Nov 12th and, despite tests of this ranking on Nov 22nd and Dec 26th, has remained Favored since.  The lower panel shows that XLC has coincidentally outperformed the benchmark S&P 500 (SPY) by 3% as these relatively aggressive asset inflows have driven the price of the ETF higher.

Chart 1

Technology: XLK

Economically sensitive Technology (XLK) is the SEAF Model’s second-best-ranked sector this week with a Ranking score of 14.  The green highlights show that Technology initially moved into Favored status on Dec 4th (upper panel) while XLK has coincidentally outperformed the benchmark S&P 500 (SPY) by 1%.  Technology has recently tested and held a Dec 31st test of the lower edge of its Favored status, which we viewed as a Tactical decision point for the sector.  As long as Technology retains its current Favored status, it will suggest a bet by investors that – despite the current broad market correction — Technology/AI will continue to outperform.

Chart 2

Health Care: XLV

Defensive Health Care (XLV) is the SEAF Model’s fourth best-ranked sector this week with a Ranking score of 13.  The green highlights in Chart 3 below show that Health Care edged into a Favored Ranking on Jan 7th for the first time since mid-September 2024.  We view this as a potential indication that, following a 23.3% advance in the benchmark S&P 500 (SPX) during 2024, investors may be starting to position themselves for an overdue corrective decline.

Chart 3